South Korea walks into technical recession in Q2 – UOB

Ho Woei Chen, CFA, Economist at UOB Group, assessed the latest advanced Q2GDP data in South Korea.

Key Quotes

“The advance 2Q20 GDP data… confirmed that South Korea economy is now in a technical recession, the first since the first half of 2003. On a seasonally adjusted q/q basis, Korean GDP contracted for the second straight quarter at a larger-than-expected -3.3%, the largest pace of decline since 1Q98.”

“The 2Q20 GDP decline was led by contractions in goods and services exports (-16.6% q/q) as well as fixed investments (-1.1% q/q).”

“On a year-on-year comparison, GDP also slipped into decline at -2.9% from a growth of 1.4% in 1Q20… The largest contributors to the growth contraction came from private consumption (-2.0% point) and net exports at (-1.9% point) while government spending (+1.0% point) and capital investment (+0.4% point) added to growth. With the latest data, South Korea GDP has contracted by -0.8% y/y in 1H20.”

“Looking ahead, private consumption which accounts for half of the GDP could face renewed pressure from new wave of local COVID-19 infections. Furthermore, dismal trade data in first 20-day of July indicated that Korea’s exports have not turned the corner yet. Investment too, will be weighed by the weak global demand as well as further measures to dampen the real estate market.”

“Although we expect the Korean economy to emerge from its technical recession with positive quarter-on-quarter growth in 3Q20, the outlook has remained poor. Taking into consideration of the larger-than-expected slump in 2Q20 and weak anticipated recovery in external demand, we now expect the full-year 2020 GDP at -1.3% (from -0.5% previously) with 3Q20 at -2.2% y/y and 4Q20 at -1.5% y/y.”